This paper investigates the effects of regulatory interventions on contracting relationships within firms by examining the impacts of the Sarbanes–Oxley (SOX) Act on CEO compensation. Using panel data of the S&P 1500 firms, it quantifies welfare gains from a principal–agent model with hidden information and hidden actions. It finds that SOX: (1) reduced the conflict of interest between shareholders and their CEOs, mainly by reducing shareholder loss from CEOs deviating from their goal of expected value maximization; (2) increased the cost of agency, or the risk premium CEOs are paid to align their interests with those of shareholders; (3) increased administrative costs in the primary sector (which includes utilities and energy) but the effect in the other two broadly defined sectors, services and consumer goods, was more nuanced; and (4) had no effect on the attitude of CEOs toward risk.

Government procurement contracts rarely have many bids, often only one. Motivated by the institutional features of federal procurement, this article develops a principal-agent model where a buyer seeks sellers at a cost and negotiates contract terms with them. The model is identified and estimated with data on IT and telecommunications contracts. We find the benefits of drawing additional sellers are significantly reduced because the procurement agency can extract informational rents from sellers. Another factor explaining the small number of bids is that sellers are relatively homogeneous, conditional on observed project attributes. Administrative hurdles and corruption appear to play very limited roles.